The Trump Era: An Economic Perspective

By Lynn Henderson

Fight Back

A Collection of Socialist Essays

by Sylvia Weinstein

The following is a response to a July 29, 2017 letter from Dave Gilbert who is a political prisoner serving a long term in federal prison.  Over the past year Dave and I have been in a fruitful exchange of ideas, a recap of which was printed in the September/October 2017 issue of Socialist Viewpoint.   In his latest letter Dave posed a number of issues: the character of Trump’s role as leader of the America First/nationalist wing, the disputes in the U.S. ruling circles over Russia vs. China, China’s industrialization, its future evolution and impact on relations with the “Global South.”

Excerpts from David Gilbert’s letter:

  • You see a clearer split within the ruling class about whether Russia or China is the main enemy. As I wrote, I felt a lot of the focus on Russia was to neuter the more vulnerable country to prevent what they see as the main threat: a strong Russia/China alliance. Related to that, didn’t Obama’s “pivot toward Asia” reflect that long-term concern about China? You do explain about trying to force bigger military expenditures on China, but didn’t it go deeper than that?
  • Are you seeing Trump as a more strategically coherent representative of a faction of the ruling class than he is? He arose out of mass frustrations along with lack of effective ruling class strategy. Some of the billionaires who back him do have the views you state, but he seems more erratic.

Trump is hardly a “strategically coherent representative” for the emerging “nationalist” faction in the U.S. ruling class. He is increasingly seen as erratic and unreliable, particularly lately with the growing crisis over North Korea. Neither wing of the emerging split in the U.S. ruling class wants to stumble into another Asian war, let alone a nuclear war, over North Korea. Steve Bannon, who perhaps represents a more reality-based strategy for the nationalist faction, argues that it’s now too late to prevent a nuclear North Korea. Rather U.S. imperialism needs to concentrate on the real threat, the growing industrial power of China.

But it is Trump who got elected president proclaiming a return to an aggressive nationalist/America-First line, and successfully mobilized racist, anti-immigrant sentiment in support. Whatever his other limitations, the coalescing nationalist wing feels stuck with him and they are falling in line behind him, at least for now. Even more worrying for the nationalist/America-First wing is their growing suspicion that Trump’s only real political commitment is to his own personal wealth and ego. Bannon in an August interview with The Weekly Standard1 gives voice to this sentiment; “The Trump presidency that we fought for, and won, is over. We still have a huge movement, and we will make something of this Trump presidency. But that presidency is over.”

More broadly, most of the elected politicians in both capitalist parties are in confused disarray over the growing split in the U.S. ruling class. They are not confident over how the division will play out, and what position will best serve their own political futures in the end. As Marxists we, unlike bourgeois historians and political philosophers, adhere to the historical reality and validity of a ruling class. But this of course does not mean that any particular ruling class at any particular time is unified and in fundamental agreement. Or even that a ruling class under all circumstances, especially under the stress of a real crisis, is capable of correctly assessing its own best interests.

Background for understanding today

I think the most pressing questions in your letter were those concerning China. One—how did China, while using a market economy, become more of an economic threat than the USSR did? And two—whether China is emerging as an imperial power and what does this say about the terms of their economic relationships with Third World countries?

To begin grappling with these questions we have to again go back to the world that emerged out of WWII, and its subsequent evolution. As I previously wrote, U.S. imperialism was the completely dominant winner of WWII. It won WWII not just against the Axis powers but against its own allies as well. With the exception of the United States, the entire capitalist world came out of WWII in social, political and economic shambles. The question then before U.S. imperialism was how should it proceed?

At the end of World War II, one option the U.S. government had was the unique opportunity to use its economic and military power to dismantle the major industrial corporations of its competitors. Under the so-called Morganthau Plan, Germany was to be forcibly de-industrialized and turned into a decentralized collection of agricultural states much like it had been in the middle of the 19th century. The U.S. also had similar plans for Japan. Indeed, why stop with Germany and Japan? Why not forcibly dismember the capitalist industry of all of the United States’ major potential competitors, including its so-called allies Britain and France? After all, the logic of capitalist competition among nation-states pointed in this direction.

If that had been done, U.S. corporations would have had the entire world market—both as buyers and sellers—for themselves. If the U.S. government had followed an “America First” policy in the years after 1945—and gotten away with it—it would have meant that the stock market value of U.S. corporations would have soared to vastly higher levels than is actually the case today. The U.S. would have been “great” indeed! But as we know, the U.S. government didn’t dare attempt this, especially with the threat of the Soviet Union and the continued example of the 1917 Russian Revolution still before what would have been an increasingly impoverished and radicalizing European proletariat.

Instead, with the launching of the “Marshall Plan” Washington adopted a bi-partisan foreign policy, supported by leaders of the Democratic and Republican parties alike, buttressing a world empire in which the corporations of Britain; an economically resurgent Germany; and an economically resurgent Japan, France, Italy, Australia, New Zealand, and so on could actually compete with U.S. corporations, cooperatively exploit the Third World, and appropriate a portion of the surplus value for their non-American owners (free market imperialism). Things were made easier by the fact that the world market in the wake of the Great Depression, and the massive physical destruction of WWII, had entered an extended phase of rapid expansion.

A key element in organizing this “New World Order” was the 1944 Bretton Woods Conference in which 44 nations met in New Hampshire to “negotiate” a new international monetary system. No real negotiations took place. A completely dominant U.S. imperialism, holding all the cards, could and did dictate the terms. The alternative other participants faced was some version of the Morganthau Plan.

The lynchpin of the Bretton Woods system was the new privileged status for the U.S. dollar. All international accounts and trade would now be settled in dollars—dollars that the U.S. Treasury could just print. It was true that dollars could be converted to gold at a fixed rate of $35 per ounce, which was redeemable by the U.S. government. But the U.S. government held most of the world’s official gold reserves, and what the rest of the world desperately needed and wanted was not gold but dollars to spend on American manufactured goods—cars, steel, machinery, etc.

However, as manufacturing began to recover in the rest of the capitalist world, resistance to the Bretton Woods system and the privileged position of the dollar began to grow. In Europe the Bretton Woods system began to be characterized as “America’s exorbitant privilege”—an “asymmetric financial system” where non-U.S. citizens “see themselves supporting American living standards and subsidizing American multinationals.” In February 1965 French President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. By 1970 other nations began to demand redemption of their dollars for gold. Underlying this shift was the broader reemergence of international capitalist competition, especially in the sphere of manufacturing. In 1950 the U.S. share of the world’s total economic output was a whopping 35 percent. By 1969 it had dropped to 27 percent. The U.S. economy was faced with rising unemployment (6.1 percent in August 1971), recession and the threat of deeper recessions.

Flood tide of Keynesian economics

U.S. ruling circles became convinced that a policy of massive deficit spending and monetary expansion could successfully stimulate the economy and reverse its decline. The 1960s represented the flood tide of neo Keynesian economics in both policymaking and academic circles. If there was one time in the history of modern capitalism when the academic and political mainstream believed that they could finally beat the “business cycle” once and for all, it was then. In 1971 President Richard Nixon was reported to say, “We are all Keynesians now.” Even many Marxists seemed foolishly willing to accept these claims.

But implementing such a policy was impossible as long as the dollar was tied to gold, which would allow nations throughout the world to flee an inflating dollar by demanding the U.S. Treasury redeem their dollars for gold. On August 13, 1971 fifteen high ranking White House and Treasury advisors met secretly with Nixon at Camp David and unilaterally abandoned the Bretton Woods agreement by suspending the convertibility of the dollar into gold. Historically this is known as the “Nixon Shock.”

While the rest of the capitalist world was certainly not happy with the unilateral ending of dollar/gold convertibility, nothing else was available to function as the world’s reserve currency and the essential vehicle for carrying out world trade. In the final analysis, overwhelming military power enabled the U.S. to convert the dollar into a token currency with an internationally forced circulation.

Now that this “metallic majesty” had been overthrown, the U.S. government and central bank believed they could guarantee “effective demand” sufficient to buy the vast and ever-growing quantity of commodities U.S. capitalist industry was churning out. Throughout the 1970s these policies were now put into effect with massive deficit spending and aggressive monetary expansion. But the results were not as expected and predicted. Rather than stimulating the economy and returning the growth rates of the ’50s and ’60s, the result was sharply increasing inflation peaking at almost 15 percent by the spring of 1980. This crisis required the coining of a new term in economic jargon—stagflation.

But stagflation was much more than a crisis for just the U.S. economy. The rest of the world began losing confidence in the dollar as the reserve currency. Even though the dollar was no longer officially convertible to gold, it began to be dumped for gold, whose price soared to over $800-an-ounce. Conversely the dollar’s value plummeted on the foreign exchange markets. While many capitalist countries have experienced runaway inflation or even hyperinflation, runaway inflation has never hit the central or reserve currency. If the dollar succumbed to runaway inflation, it would drag down every other capitalist currency with it. If this were allowed to happen while the dollar remained the reserve currency, the result would certainly be by far the worst financial crisis—not excepting the super-crisis of 1929-33—in the history of capitalism.

Crushing inflation

U.S. imperialism was left with no alternative but to move aggressively to crush the dollar inflation it had inadvertently set off. The job was assigned to Paul Volcker, a prominent investment banker who was appointed chairman of the Federal Reserve. Over the next two years he quickly more than doubled the prime interest rate to an unheard-of level of over 20 percent. This harsh medicine, known as the “Volcker Shock,” brought inflation somewhat under control but not without significant costs, precipitating the sharp 1981 recession.

U.S. imperialism and its Federal Reserve, admittedly in a pragmatic and empirical way, learned that contrary to widespread hopes in the 1960s, replacing the gold standard with paper money does not enable capitalist governments and central banks to expand demand up to the physical ability to produce and thus abolish periodic crises of general overproduction under capitalism.

But beyond the 1981 recession there was another even more important consequence of the rise of the rate of interest above the rate of profit in the wake of the dollar crisis. The period of extremely high but declining interest rates that followed the Volcker Shock led to a massive destruction of heavy industry in the U.S., Great Britain and to a lesser extent Western Europe. This occurred in two interrelated ways, the first was called “financialization;” the second, a particularly aggressive form of “globalization.”

Financial manipulation vs. production of things

Soaring interest rates made capital investment in the actual production of things less and less profitable, but investment in various forms of financial manipulation extremely profitable. Capital shifted away from manufacturing to a proliferation of new (and often risky) exotic financial instruments—hedge funds, derivative securities, credit default swaps, securitized and bundled mortgages, etc. Between 1973 and 1985, the U.S. financial sector accounted for about 16 percent of domestic corporate profits. In the 1990s, it increased to 21 percent to 30 percent. In the first decade of the 21st century it soared to 41 percent of all U.S. domestic corporate profits. General Electric, for instance, became one of the nation’s poster-children for this development, shifting from one of the premier U.S. manufactuers to more and more a financial, money lending corporation.

Then as interest rates fell, and positive net profits in manufacturing returned, capital in the form of money and loan money capital was free to invest in new areas. It chose to do this not in the old industrial areas of Britain, the United States and Western Europe but in areas where the rate of profit was far higher, leading to what has come to be known as “globalization.” No matter how much capitalists speak about “love of country” as the highest virtue, the capitalists themselves—whether they are American, German, Japanese, Russian or Chinese—put profit first, last and everything in between.

Two political changes that occurred during the 1980s and 1990s played a crucial role in making this aggressive globalization possible. First, the counterrevolutionary destruction of the Soviet Union and its Eastern European “socialist” allies meant that capitalists of the U.S., Britain and Western Europe became much more confident that capital invested outside the imperialist countries would be safe. It even raised expectations among many capitalist leaders—such as George W. Bush—that something like pre-World War II colonialism could be restored. But this time it would be the U.S. Empire rather than the British Empire that would be the chief jailers of the colonized peoples. It led to the Iraq invasion and other adventures in the Middle East and now Africa.


The second crucial development was the outcome of the great Chinese Revolution of the 20th century. With the rise of Deng Xiaoping to power in 1978, the Chinese revolution had finally run its revolutionary course. Unlike in the Soviet Union however, in China while there was political reaction—epitomized by Deng’s “it is glorious to get rich” slogan—there was no similar counterrevolution.

When the dust finally settled after decades of revolution, civil war, counterrevolution, Japanese occupation, still more civil war, the liberation of 1949 when China “stood up,” and finally the Cultural Revolution, China emerged with a strong central government independent of western imperialism. The new government was eager to attract foreign capital and willing to respect bourgeois private property rights in order to achieve rapid economic development along capitalist lines—but on its own terms. It was determined not to allow a repeat of what had occurred in the Soviet Union—the chaotic collapse of the Communist Party apparatus and a Western influenced privatization and deindustrialization of the economy.

The defeat of U.S. imperialism in the Vietnam War had led to yet another crucial development favoring China. In the 1970s, unable to break the resistance of the peoples of Indochina, the Nixon administration finally decided the time had come to normalize relations with the People’s Republic of China, including, most importantly, allowing China access to the world market, something they never did with Russia as long as the Soviet Union existed. Nixon-Kissinger had their own motives in this: driving a wedge between any existing and future Russia-China alliance; increasing long existing antagonisms between China and Vietnam; and also the possibility of opening China to U.S. investment.

Handed down from the pre-revolutionary past, the new China possessed a gigantic peasantry numbering in the hundreds-of-millions accustomed to a very low standard of living and hard manual labor. This peasantry served as the source for an industrial proletariat willing to put up with a much higher rate of extracted surplus value than the workers of North—and even Latin—America, Western Europe or modern Japan. Huge amounts of foreign investment, especially U.S. investment flowed into China. What the United States capitalists wanted most of all from China, was the lion’s share of the surplus value produced by the Chinese working class. Russian workers produce very little surplus value compared to what the U.S. capitalists could appropriate from Chinese workers in the form of profit, interest and dividends.

The problem from the viewpoint of the U.S. capitalist class and its political representatives—the Party of Order of both Democrats and Republicans and the emerging Trump America First gang—is that the U.S. capitalists, in squeezing huge amounts of surplus value out of the Chinese, have been forced to develop China’s productive forces at the same time.

As a result of the convergence of historical forces described above, including the failed attempt of capitalist governments and central banks to solve the problem of periodic crises of general overproduction through issuance of paper money, in an amazingly short period of time China emerged as the country with the highest absolute level of industrial production—though not on a per capita basis. Meanwhile, the imperialist countries of the U.S., Britain and Western Europe have become increasingly de-industrialized as result of the operation of the same economic laws.

In order to make the empire last for even 70 years—a very short period historically—the U.S. had to give up much of its domestic industrial production. This initially was no great sacrifice for the U.S. capitalists because in exchange they have, at least up to now, vastly increased their ability to exploit the industry and workers of other nations. Herein lies the answer to the riddle of why the U.S. stock market has been able to perform so much better after the “Great Recession” than was possible after the Great Depression, despite the vastly stronger recovery of U.S. industrial production during and after the Great Depression compared to the feeble recovery of U.S. industrial production since the Great Recession. But as U.S. post WWII hegemony continues to disintegrate, this becomes harder and harder to maintain.

The Trumpists fear that sometime in the not too distant future, the U.S. capitalists will have to be content with a far smaller share of the global surplus value produced. Among the consequences when this comes to pass will be that U.S. capitalists will have much less surplus value to maintain—actually bribe—a relatively large but already shrinking middle class, which includes the “aristocracy of labor” inside the U.S. Therefore, Trump and his gang believe, the U.S. shouldn’t let itself be distracted by an avoidable war—or even war of words—with Russia. Trumpists believe that it is not Russia but China that must be confronted and must be confronted now. (I should say here that throughout this analysis I have drawn heavily on Sam Williams excellent blog, “A Critique of Crisis Theory”2 and encourage readers to avail themselves of his monthly postings, past and future.)

China’s direction and
future evolution

The other crucial China question is whether China is emerging as an imperial power, and what does this mean for their future economic relationships with Third World countries?

After the victory of Deng Xiaoping’s grouping within the Central Committee of the ruling Communist Party of China in 1978, China has industrialized through the massive import of foreign capital, the development of capitalist industry, and a massive expansion of exports. The economic laws governing China’s rapid industrialization since 1978 have been the laws that govern the development of capitalism.

The Chinese Communist Party itself describes the current Chinese economy as a market economy and not a planned economy like was the case with the Soviet economy. During Deng’s rule the Chinese Communist party developed the slogan “Socialism with Chinese Characteristics” to provide an ideological footing for the Party’s embrace of market remedies. At the just completed Communist Party Congress, which meets every five years, President Xi Jinping introduced a new slogan which was incorporated into the constitution; “Thought on Socialism with Chinese Characteristics for a New Era.”

While this new phrase could be open to many interpretations it is clarified by the dominant theme of the Congress and President Xi’s repeated central goal—“Make China Great Again.” And further, only the Communist Party of China can guarantee this “China Dream” of national rejuvenation. This slogan seems to be an echo of Trump’s “Make America Great Again,” but in reality, the two slogans encompass diametrically opposed world strategies.

The Trumpists believe that to “Make America Great Again” U.S. imperialism must abandon the globalizationist strategies it followed since the end of WWII, including promoting “free trade” and multinational trade agreements, which are no longer in its interests. Rather the United States needs to return to a policy of aggressive U.S. nationalism, including, when necessary, protectionist trade policies. From now on, the U.S. government should directly use its state power to enrich U.S. corporations at the expense of the corporations of other countries; including so-called “allies” just like was done in the “good old days” before 1945. The U.S. is still the largest economy in the world and the planet’s overwhelmingly dominant military power. Before China becomes any stronger it should use that leverage to impose its economic will.

China on the other hand, as the world’s most rapidly expanding manufacturing power, is now its strongest proponent for globalization, “free trade,” open markets and multinational trade agreements. Under China’s “One Belt, One Road” initiative, which is aimed at creating a modern version of the Silk Road, a network of trading routes from China to Africa and Europe, it has launched a massive economic outreach dwarfing even the Marshall Plan of U.S. imperialism following WWII.

A nervous May 18, 2017 New York Times editorial titled, “China’s Trillion-Dollar Foreign Policy,”3 warns: “China clearly aims to dominate the international system…shaping how vast sums are spent and where, and which laws are followed or not—it could upend a system established by Washington and its allies after World War II.”

Through direct investments, loans, financial aid, construction and engineering expertise, China is penetrating the economies of numerous countries it considers among its geopolitical priorities. One revealing example is the NATO member, Greece. China has poured money into its key Mediterranean port of Piraeus, considered the “dragon head” of China’s vast “One Belt, One Road” project. “While the Europeans are acting towards Greece like medieval leeches, the Chinese keep bringing money,” said Costas Douzinas, the head of the Greek Parliament’s foreign affairs and defense committee and a member of the governing Syriza party.

And it is not just construction projects. As Europe’s banks demanded the gutting of Greek pensions and sharp tax increases to guarantee repayment of their predatory loans, the Chinese offered to throw Greece a lifeline by buying toxic Greek government bonds.

Meanwhile China has transformed Piraeus into the Mediterranean’s busiest port, investing nearly half-a-billion euros through the Chinese state-backed shipping conglomerate, Cosco. As a result, Cosco now controls the entire waterfront through its 67 percent stake in the port. With a rueful chuckle, Mr. Douzinas comments; “It’s a kind of neocolonialism without the gunboats.”

Today the ruling Communist Party of China still proclaims its ultimate aim is to build a communist society in China, if only in a distant future. But the party explains that to do this, China must go through a preliminary stage called—“socialism with Chinese characteristics,” or most recently—“Socialism with Chinese Characteristics for a New Era.”

While periodically the party does launch anti-corruption crackdowns on individual capitalists, the size and weight of this sector continues to grow. In his speech at the opening of the Communist Party Congress, President Xi proclaimed the party would “inspire and protect the spirit of entrepreneurship.” China now has 647 billionaires in American dollar terms, according to The Hurun Report, which claims to track wealth in China. Many of these billionaires began as members of the Communist Party, others later acquired party membership. All of this poses the question, what is the probable future evolution of the China state and its economic relationship with other nations?

Impact of Stalinist ideology

Any assessment of the future direction and evolution of China has to take into account the deep impact of Stalinist ideology on the Chinese Communist Party. An impact that goes back at least as far as the slaughter of the Chinese urban proletariat in the 1927 counter-revolution lead by Chiang Kai Sheki, who had been made an honorary member of the Third International by Joseph Stalin.

The Stalinist bureaucracy and leadership that successfully displaced the original Bolshevik-Leninist revolutionaries in the Soviet Union had many reactionary characteristics—authoritarianism, opposition to worker’s democracy, oppression of national minorities, material privileges based on corruption, etc. But the essence of Stalinism, the core of its counter-revolutionary character, was its abandonment of the Leninist commitment to international revolution, its abandonment of international class solidarity. Under the new Stalinist rubric of “Building Socialism in One Country,” the role of the world proletariat, and the task of Communist Parties outside the Soviet Union, was not socialist revolution, but reduced rather to that of border guards for the Soviet Union and its conservatized bureaucracy.

The People’s Republic of China today, with its access to the world market and its aggressive “One Belt, One Road” strategy, is penetrating and influencing the world economy in ways which were never available to the Soviet Union. But like the Stalinized Soviet Union, in word and deed, the Chinese Communist Party makes clear its goal in this is not international class solidarity, let alone socialist revolution. Rather its aim is restricted to developing political and economic accommodations with select capitalist and third world regimes that further its “silk road” trade expansion.

In the Soviet Union the left opposition to the consolidating bureaucracy and its developing counter-revolutionary politics originally centered on winning the party back to an internationalist revolutionary course. But after the Stalinist role in the defeat of the 1927 Chinese revolution, followed by the victory of Nazi fascism in Germany, with no real fight from what was then the largest communist party in the world outside the Soviet Union—a Rubicon had been crossed. Reform of the Stalinized Russian Communist Party was no longer considered a possibility. Instead, what was required was a political revolution that would remove the Stalinist leadership and its bureaucratized base from power. Leon Trotsky, the principal leader of the left opposition, summed up the situation in 1938 with his now famous prognosis: “There are now only two possible courses for the Stalinist bureaucracy in the Soviet Union. Either the bureaucracy, becoming ever more the organ of the world bourgeoisie in the workers’ state, will overthrow the new forms of property and plunge the country back to capitalism; or the working class will crush the bureaucracy and open the way to socialism.”

While China and its communist party has its own history, and is certainly not a carbon copy of the Soviet Union, I believe the prognosis and dichotomy laid out by Trotsky in 1938 very much applies to today’s China. China in its amazing industrialization, even while carried out by capitalist methods, is creating a massive, modern proletariat, with tremendous revolutionary potential. Counterposed to this is the increasing power of an internal capitalist class. The eventual outcome of course remains an open question. A successful socialist revolution elsewhere in the world, especially in an advanced capitalist country, would have a decisive positive impact on the outcome.

1 “Bannon: ‘The Trump Presidency That We Fought For, and Won, Is Over’”

2 A Critique of Crisis Theory

3 “China’s Trillion-Dollar Foreign Policy”